Corporates love for PEs to continue as IPOs dry up: survey

With the initial public offerings (IPO) market 'almost dead' for over a year now, a majority of corporates are looking to raise capital through the private equity route this year, a survey by global consultancy Grant Thornton has found.

As many as 60% of the corporates polled in the survey on the country's private equity and mergers and acquisitions landscape have said they will be looking at the PE route, the survey findings released today said.

Hitting the capital markets through a public float, the preferred route for many years, has been relegated to the third position with only 7% of the respondents saying that they will opt for it in the mid-to-short term.

In 2011, as many as 373 deals were closed in the country with an overall deal value of $8.75 billion, as against 253 deals worth $6.23 billion in 2010.

The Rs 600-crore IPO issue announcement by the commodity bourse MCX on the higher band yesterday is widely considered as an exception to the otherwise dull IPO market here where postponing an issue or scrapping it has become the norm in the recent past due to the poor market conditions.

Last year, the BSE benchmark Sensex had lost 25%, though since mid-January this year, it has jumped nearly 20% from the lows.

The consultancy firm said PE funds are sitting on a dedicated fund pile of over $20 billion which can result in an increase in PE fund flows this calendar year.

"With over $20 billion of dry powder yet to be invested in the country and growing acceptance of PEs, the deal street is expected to gain momentum in terms of volume and value this year," it said.

On the sectors, the survey found a majority 24% of those polled being bullish on pharma, healthcare and biotech, followed by manufacturing (19%), and banking and financial services (15%).

The telecom sector, which was high up on the radar of PEs and has seen quite a lot of upheavals in recent months following the 2G scam, found favour with only one% of the respondents.

A slew of scams and the ensuing policy paralysis, issues around taxation environment and lack of consistency in regulations have for some months been seen as impediments for investors looking in the country that is staring at growth falling below the seven% mark.

The concerns found their way into the survey as well with legal/regulatory environment (19%), tax issues (17%) and slowing growth concerns (10%) being stated as the obstacles for PE investing here.

The inherent issues are dissuading homegrown companies against expanding in the domestic market and driving them to invest in offshore destinations by acquiring companies, the firm's partner Harish HV said.

"Why isn't capacity being added here and why are the investments going abroad is something that policymakers need to consider," he said.